‘Surnamed Charitable Trusts: Immortality at Taxpayer Expense’

William A. Drennan (assistant professor of law, Southern Illinois University) has recently published his article entitled Surnamed Charitable Trusts: Immortality at Taxpayer Expense, 61 Ala. L. Rev. 225 (2010).

An excerpt from the beginning of the article is below:

Charitable trust law authorizes surnamed trusts and provides no convenient mechanism to force a name change even hundreds of years after the founder’s death. Tax lawtreats the use of a surname as harmless. A founder’s ability to surname can provide a significant benefit to the founding family at the expense of the common good. This Article introduces the topic into the debate, provides new empirical evidence, and proposes a viable legislative response.

Part I discusses the burgeoning popularity of naming rights and provides original empirical evidence that founders surname approximately eighty-five percent of the time. Combining this new empirical evidence with available IRS statistics indicates that there are over 60,000 surnamed charitable trusts in the United States with assets in excess of $370 billion.

Part II demonstrates that the government subsidizes forty-five percent to sixty-seven percent of contributions to family charitable trusts and asserts that the government should demand substantial public benefits in return. A founder’s right to surname for a restricted time can benefit society by inspiring the wealthy founder to contribute money, time, and energy to benefit worthwhile charitable projects. The founder may be a maverick philanthropic wizard with an innovative charitable vision to improve the quality of life.Nevertheless, a perpetual surname can have serious adverse consequences. Even after the dynamic founder and the next generation have passed on, the surname will continue to haunt the charitable trust. The family may be loath to abdicate control as long as the trust bears the surname. The perpetual surname discourages diversity and community involvement on the board of trustees, restricts the flow of information, pro- motes nepotism in hiring, and inhibits the channeling of grant funds to effective charitable projects. For example, all other things being equal, if one foundation’s name is Save the Puppies and the other’s name is the Leona Helmsley Foundation, volunteers and other outsiders who can bring experience, talent, and diversity will be more enthusiastic about seeking a position at Save the Puppies. Also, more grant seekers will find, and therefore submit proposals to, Save the Puppies.

Part III proposes a nuanced approach. The proposal would require that a charitable trust omit the surname after a period of years. Prior reform proposals aimed at different aspects of charitable trusts required action within twenty-five years, and Congress rejected those proposals as too radical. Accordingly, this proposal would allow surnames for fifty years.

Part III also considers the practical implications for many charitable trusts, including national multipurpose surnamed charitable trusts. The new requirements would not apply to publicly supported charities, trustsdedicated to support one publicly supported charity with the same surname, or trusts underwritten by publicly traded corporations. Although beyond the scope of this Article, Part III raises other important issues in- volving diversity, transparency, and accountability.